US releases bleak unemployment figures

Joblessness rises for first time in a year, prompting criticism of president and calls for easing of monetary policy.

01 Jun 2012 19:38 GMT

Job growth in the US fell sharply in May, with the unemployment rate rising for the first time in 11 months, putting pressure on the Federal reserve to ease its monetary policy.

Friday's figures released by the Department of Labour are troubling news for US President Barack Obama, whose prospects of winning re-election in November could hinge largely on the health of the economy.

The department said that employers added a paltry 69,000 jobs to their payrolls last month, the least since May of last year,

In addition, 49,000 fewer jobs were created in the prior two months than had been thought, with the unemployment rate rising to 8.2 per cent from 8.1 per cent in April

Mitt Romney, Obama's Republican presidential challenger, wasted no time in jumping on the data to criticize the president's economic policies.

"Today's weak jobs report is devastating news for American workers and American families," Romney said in a statement, calling the report "a harsh indictment of the president's handling of the economy".

'Large hole'

The White House expressed disappointment in the data.

"We'd like to see faster job growth," Alan Krueger, the chairman of Obama's Council of Economic Advisers, told the Reuters Insider website.

"We have a large hole in jobs right now because of job losses than happened during the recession."

There were a couple spots of relative brightness in the report.

An influx of workers into the labour market largely explained the rise in the jobless rate, and the department's survey of households - a more volatile measure - showed robust jobs growth.

A separate report on US factory activity in May showed some slowing but suggested the economy was not falling off acliff.

Economists polled by Reuters had expected non-farm payrolls to increase 150,000 and the jobless rate to hold steady at 8.1 per cent.

Unseasonably warm weather had brought forward hiring into the winter months, and was widely blamed for the step back in March and April.

"Some had believed that we had decoupled from China slowing and all the problems in Europe, but that seems to beshort-sighted," said Malcolm Polley, president and chief investment officer of Stewart Capital Advisors in Indiana,Pennsylvania.

"We're slowing alongside the rest of the world."

Data from overseas on Friday was similarly troubling.

Chinese factory output barely rose in May and manufacturing activity in Britain shrank at its fastest pace in three years.

Earlier data had shown manufacturing activity also declined in Germany and France.

Unlike Europe, where many economies are falling into recession, US manufacturing activity is still growing.

The Institute for Supply Management said its factory gauge slipped to 53.5 last month from 54.9 in April, stayingcomfortably above the 50 line that separates expansion from contraction.

New orders hit their highest point in more than a year.

'Missing ingredient'

The weak payrolls report could cause the Fed to move closer to launching a third round of bond purchases.

The US central bank, which holds a policy meeting on June 19-20, was already nervous over the course of the eurozone debt crisis.

"This puts the Fed firmly in play and they will likely feel compelled to respond," said Tom Porcelli, chief US economist at RBC Capital Markets in New York.

"The missing ingredient preventing the Fed from action had been the equity market, but now we are seeing it softening."

The Fed cut overnight interest rates to near zero in late 2008 and bought $2.3 trillion in bonds to try to spur a strongerrecovery.

It has also said it expects to keep rates "exceptionally low" through at least late 2014.

However, interest rate futures on Friday showed traders now see no chance that rates will rise before the second quarter of 2015.

Weak consumer spending

The level of employment is about five million jobs below where it was in December 2007, when the economy fell into recession.

Analysts say the economy needs to create roughly 125,000 jobs a month just to keep the unemployment rate steady.

The labour force participation rate - the share of working-age Americans who either have a job or are looking for one - rose to 63.8 per cent, after dropping to a 30-year low in April.

Job gains were weak across the board last month, with the private sector adding only 82,000 positions. Government payrolls dropped by 13,000, dragged down by ongoing belt-tightening by local governments.

Given the high unemployment rate, average hourly earnings rose only two cents and the average work week fell to 34.4 hours. Slower income growth is holding back any large increase in consumer spending.

A report from the Commerce Department showed consumer spending rose 0.3 per cent in April after gaining 0.2 per cent in March.